Successfully Navigating the Shift in Third-party Reimbursements Post COVID-19
Author: Austin Singleton, Au.D., and Patty Greene, M.A.
Unlike many other countries, hearing aid wearers in the United States have had limited government or private insurance coverage for their hearing aid purchases. Beyond the Government Services channel, primarily reserved for members of the military, most Americans in need of hearing aids pay for them out-of-pocket without any third-party payor involvement. Experts have identified this lack of government or private insurance coverage as a contributing factor to the U.S. market’s low hearing aid penetration rate, which by most accounts hovers around 25% to 30% of the adult hearing-impaired population and compares to other developed countries where penetration ranges from 35% to 45%.
In recent years, the hearing aid industry has seen an increase in private insurance coverage for hearing aids. This shift has created a need for providers to change or streamline some of their customary business practices in order to maintain profitability. The sudden onset of COVID-19, and its economic impact is likely to hasten this shift as more patients, looking to save money will utilize their third-party benefit when acquiring hearing aids.
The proliferation of third-party hearing aid benefits, such as Medicare Advantage programs, mean that audiologists must adjust their business practices. These practices may include operational changes, staffing responsibilities and compensation, or patient communication. Before we examine these business practices, it is important to understand why these changes have become necessary – simply put, there is a constellation of forces that are changing reimbursement for hearing aids – forces now moving at a breakneck pace due to the fallout from COVID-19.
There are several peer-reviewed studies that indicate un-treated age-related hearing loss in adults, which is the most prevalent type of hearing loss of adult onset, is not a benign condition. Hearing loss has been linked to cognitive decline, depression, social isolation, and loneliness. This linkage also contributes to the skyrocketing costs of healthcare. The aging population, who are the most at-risk for developing these conditions associated with untreated hearing loss, is growing at a rapid rate. Driven by the aging Baby-boomer population, it is estimated 10,000 people per day in the U.S are turning the age of 65 and are thus more susceptible to age-related hearing loss. Healthcare in the United States is expensive, as it now comprises nearly 20% of the total gross domestic product. Additionally, the COVID-19 pandemic is likely to have long-term economic and social consequences, some of which will motivate consumers to save money on expensive purchases such as hearing aids and move toward using third-party insurance plans to save money. These factors suggest many people in need of hearing aids cannot afford a large out-of-pocket expense. Given the rising overall cost of healthcare, combined with the deleterious effects of untreated hearing loss, a growing number of third-party payors, including Medicare Advantage programs, include hearing aids as a reimbursable expense.
Today, the number of insurance plans offering some level of coverage for hearing aids has substantially increased. It is estimated that 5% to 10% of U.S. hearing aid private market purchases are at least partly funded by insurance. Experts suggest that the number of hearing aid purchases, funded at least in part by third parties, is expected to triple over the next five-to-ten years. Currently, there are more than a dozen Medicare Advantage and similar third-party insurance plans that offer their members a hearing aid benefit. Although the details of these Medicare Advantage programs vary, members of these plans can purchase a pair of hearing aids at more than a 50% savings compared to an average out-of-pocket expense of about $2,000 per hearing aid in the U.S. private market. Considering these substantial out-of-pocket savings, a growing number of consumers will gravitate toward using insurance coverage to offset the out-of-pocket costs of hearing aids – a number likely to rise because of the long-term economic impact of the COVID-19 pandemic.
Although the benefit of third-party insurance contracts is clear for consumers, managers or owners of a clinical practice will need to determine what overall benefit, including financial benefit, these referrals may add to their practice. After all, if provision of a new product or service does not generate revenue for a practice, it is difficult to justify implementing it. Hearing aids purchased through a third-party payor are not a new concept. Many clinics around the country have been accepting third-party business for several years. Although there is no reason to believe patients receiving hearing aids through a third-party payor contract derive less benefit or satisfaction than those paying completely out of pocket for similar devices, many clinics are challenged by the business metrics associated with third-party contracts, such as smaller margins, and capitated rates for products and services. Most hearing aid dispensing practices have built their businesses around generating revenue from individuals who pay out-of-pocket for hearing aids, where hearing aid margins and capitated rates are not determined by third parties. Rather each patient in need of products and services is able to negotiate directly with the clinic, or, do as what typically happens--accept the rates that the clinic offers and purchase them out-of-pocket.
Since a growing number of persons with hearing loss have a Medicare Advantage (or similar) benefit, it behooves all clinics to implement strategies that allow acceptance of these patients in a manner that is profitable for the clinic. This article examines some of the key best practices to implementing an effective business strategy for accepting patients with Medicare Advantage plans in a way that is beneficial to the patient and advantageous for the clinic.
1. Examine “the why” from the consumer’s perspective.
Every independent provider needs to be able to calculate the economic value a third-party referral offers their clinic. To do this accurately, it is important to account for all factors related to profitability, rather than only looking at top-line revenue per sale. The most accurate way to do this is to calculate the profit per patient per hour. Details about how to perform this calculation are explored in detail later in this article, but first it is important to understand today’s consumer mentality and why third parties are attracting them. The internet has played a major role in creating a hearing aid consumer who is more knowledgeable about hearing aid technology, pricing, and the many avenues available for purchasing hearing aids. Readily available information and online consumer reviews and recommendations often compete directly with the independent provider’s marketing in attracting consumers to a non-traditional path for purchasing hearing aids. Some of these paths include the provider and some do not.For example, direct-to-consumer options—like iHear Medical, BuyHear and Audicus—exclude hearing care providers altogether. On the other hand, many third-party referral companies—like TruHearing, EPIC, Hearing Care Solutions, and Hear.com, do include providers in the hearing care process. However, not all third-party companies attract the same types of consumers or operate in the same manner. Some use online direct-to-consumer marketing practices to generate leads, which are then funneled to the providers within their network. Others operate using a managed-care model, by partnering with insurers to offer their services to members in the form of a benefit or discount. In both cases, providers are paid a professional fee—which varies by company—for dispensing hearing aids to these third-party referrals.
The reasons consumers choose to go through third parties are fairly simple – they believe their insurer, or the online channel is a trusted source, they are attracted by the promise of saving money, and they believe they will receive the best overall value. Given the way the COVID-19 pandemic is affecting the economy, clinicians can expect the number of persons with hearing loss using a third-party benefit will increase.
2. Compare Profit from a Retail Patient versus a Third-party Referral
Historically, average selling price (ASP) and total number of hearing aids sold have been strong indicators of the financial health of a retail clinic. Today, though, this is no longer accurate because competitive market pressures have compressed margins on hearing aid sales and because not all hearing aid sales are out-of-pocket.Most providers now work with a mix of hearing aid buyers – third-party referrals for which a professional fitting fee is paid to the provider and those patients who pay out-of-pocket. These market changes have made it necessary for providers to calculate profit in a new way – profit per patient per hour.
Providers who know their profit per patient per hour, will be able to utilize this data to make informed financial decisions to maintain a successful clinic. Calculating profit per patient per hour helps practices to determine if third-party referrals are a good financial fit or whether to shift their business to a medical model, where patients are charged for value-based services, rather than continuing to focus on the income from the sale of a product.
3. Gathering the Right Data to Measure Profit Accurately
It is important to note that calculating profit per patient per hour is not the same calculation or the same numerical value as how much profit your clinic needs to keep its doors open.To calculate profit from retail patients and from third-party referrals, all factors which influence profitability must be measured and tracked independently for each type of patient. This is because not all metrics apply to both types of patients. For example, there is no customer acquisition cost or cost of goods for third-party referrals but there is for retail patients.
It is important to keep in mind that these metrics will be different for each third-party referral company therefore, profit per patient per hour must be calculated independently for each company as well.
A closer look at what data points must be measured and whether they influence retail profitability, third-party referral profitability or both are shown in Table 1 below.
Table 1. Data needed to calculate profit per patient per hour
| Metric | Definition | Track for retail, third-party or both patient types |
| Average Customer Acquisition Cost (CAC) | Annual marketing spend divided by total # of sales opportunities, which include:
|
|
| Average Selling Price (ASP) |
|
|
| Average Cost of Goods Sold (COGS) | Average cost to provider for all hearing aids sold in the clinic |
|
| Average Closing Rate | Of the total number of patients seen in your clinic annually, what percentage buy hearing aids? | Track independently for both retail and third-party referrals |
| Average Return Rate | Of the total number of hearing aids sold annually, what percentage are returned? | Track independently for both retail and third-party referrals |
| Average number of hearing aids sold per patient |
| Track independently for both retail and third-party referrals |
| Average number of times the patient is seen after the fitting | Average # of visits per patient during the first 12 months, after the initial fitting | Track independently for both retail and third-party referrals |
| Time spent on hearing exam, fitting visit, follow-up visit | What is the average time spent performing:
| Track independently for both retail and third-party referrals |
| Amount paid for hearing exam, fitting visit, follow-up visit | What is the average fee you are paid for:
| Track independently for both retail and third-party referrals |
| Average transaction fees incurred for patient financing | Average fee incurred by the provider for patient hearing aid financing |
|
As Table 1 indicates, a multitude of factors influence profitability. Although it is not expected that the profit from a third-party referral will be greater than from a retail sale in the first year, many providers who have performed this calculation have been surprised that the profit margin was much closer than expected. Knowing their specific clinic’s data further supported their decision to accept third-party referrals.
4. Calculating Profit per Patient per Hour
Once the data outlined in Table 1 is gathered, the profit per patient, per hour, calculation can be completed. Providers are encouraged to contact their business or financial advisor for assistance with performing this calculation.Alternatively, contact TruHearing's Network Management team at [email protected] to request a copy of the TruHearing Financial Calculator to use in your clinic. This can also be viewed on YouTube.
Figure 1. Sample Financial Calculations
Other Third-Party Managed Care Considerations
For the 2018 benefit year, 73% of Medicare Advantage enrollees nationwide chose a Medicare Advantage plan that offered a hearing aid benefit. This is an increase from 65% in 2017 and 47% in 2015. The number of insurers partnering with a third-party company to administer their benefits increases each year. These factors make accepting these referrals an increasingly important decision for providers to make. The following are several considerations when planning to add a third-party partner to your portfolio of products and services.
Competitive Advantage
Third-party referrals are only sent to in-network providers, giving those providers a competitive advantage. Becoming an in-network provider may open your practice to a large number of patients who cannot visit other clinics in your area because they are not part of the third-party, managed care contract.
Access to Referrals
In order to maintain access to plan members, a growing number of plans require providers be in-network with the third-party company administering the hearing care benefits. For providers located in an area where a third-party managed care company has contracted with large plans in their area, this may play a significant role in the decision to accept these referrals.
High Purchase Rate
A hearing aid benefit offers consumers a compelling factor in the decision to purchase hearing aids2. Consumers value controlling out-of-pocket costs while utilizing the insurance they are already paying for. Largely because of the cost factor, patients who have a hearing aid benefit are more likely to purchase from you than patients without insurance coverage. Thus, conversion rates are better for patients with the hearing aid insurance benefit.
First Time Users
When insurance plans notify members of their benefit, referrals increase. Many of these are first-time users seeking to utilize their hearing aid benefit. First-time hearing aid users present many practices with an opportunity for additional revenue, both now and in the future. According to the recently published MarkeTrak 10 survey, just under 60% of hearing aids purchased in 2018 were first-time buyers, making them the largest segment of the market.
Save Time and Money
With no customer acquisition cost, no time or resources spent on insurance verification, and for many no time spent on claims submissions, third-party managed care referrals save providers and their staff time and money.
Not All Third-party Managed Care Referral Companies are the Same
As more third-party managed care companies emerge, providers must also consider that not all operate in the same manner, making some companies easier to work with than others. These differences, in addition to profit potential, should contribute to a practice’s decision about the third-party companies with which to partner.Here are a few considerations which impact provider and staff time and resources:
- Timeliness of provider payments
- Service visit requirements and charges
- Appointment scheduling process
- Patient preparedness prior to appointment
- Ordering process
- Insurance verification
- Billing/claims process
References
- Karl Strom, 4MyBiz/Hearing Review, May 2016. The Hearing Review: Introduction to MT9, May 15, 2015.
- “An Introduction to MarkeTrak IX: A New Baseline for the Hearing Aid Market.” Abrams, Harvey B., PhD; and Jan Kihm, MS. Hearing Review. June 2015
Dr. Austin Singleton is Vice President of the Provider Network and Audiology at TruHearing. He has a strong understanding of the provider’s perspective through his experience running private practices in Chicago Illinois, working in hospital and ENT settings. He is fluent in American Sign Language and has worked at the Utah School for the deaf and Blind. He currently maintains an audiology practice servicing patients.
Patty Greene, M.A. is an audiologist with more than 29 years of experience in the hearing care industry. As TruHearing’s Director of Provider Engagement, Patty is responsible for helping providers successfully utilize TruHearing programs and services through provider communications and education. She has presented nationally on topics of Managed Care, current trends and consumer impact on the hearing industry, and marketing. Previously, she has held positions in sales, marketing and training with leading hearing aid manufacturers as well as having managed her own private audiology practice.